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8. More on ratio analysis Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the
8. More on ratio analysis Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company's ROE numbers look good. An increase in ROE would imply an increase in shareholder wealth. Based on your understand solely based on the ROE O sometimes s and limitations of ROE, which of the following projects will a manager likely choose if his or her bonus is always ject? Project Y, with 4 never small investment, generating low expected cash flows Project X, with 35% ROE and a large investment, generating high expected cash flows Based on your understanding of the uses and limitations of ROE, which of the following projects will a manager likely choose if his or her bonus is solely based on the ROE of the next project? Project Y, with 40% ROE and a small investment, generating low expected cash flows Project X, with 35% ROE and a large investment, generating high expected cash flows Suppose you are trying to decide whether to invest in a company that generates a high expected ROE, and you want to conduct further analysis on the company's performance. If you wanted to conduct a trend analysis, you would: Analyze the firm's financial ratios over time Compare the firm's financial ratios with other firms in the industry for a particular year You decide also to conduct a qualitative analysis based on the factors summarized by the American Association of Individual Investors (AAII). According to your understanding, a company with one key product is considered to be risky than companies with a wide range of products. Compare the firm's financial ratios with other firms in the industry for a parti I less ar You decide also to conduct a qualitative analysis based on the factors summarized by According to your understanding, a company with one key product is considered to be more ican Association of Individual Investors (AAII). risky than companies with a wide range of products. 8. More on ratio analysis Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company's ROE numbers look good. An increase in ROE would imply an increase in shareholder wealth. Based on your understand solely based on the ROE O sometimes s and limitations of ROE, which of the following projects will a manager likely choose if his or her bonus is always ject? Project Y, with 4 never small investment, generating low expected cash flows Project X, with 35% ROE and a large investment, generating high expected cash flows Based on your understanding of the uses and limitations of ROE, which of the following projects will a manager likely choose if his or her bonus is solely based on the ROE of the next project? Project Y, with 40% ROE and a small investment, generating low expected cash flows Project X, with 35% ROE and a large investment, generating high expected cash flows Suppose you are trying to decide whether to invest in a company that generates a high expected ROE, and you want to conduct further analysis on the company's performance. If you wanted to conduct a trend analysis, you would: Analyze the firm's financial ratios over time Compare the firm's financial ratios with other firms in the industry for a particular year You decide also to conduct a qualitative analysis based on the factors summarized by the American Association of Individual Investors (AAII). According to your understanding, a company with one key product is considered to be risky than companies with a wide range of products. Compare the firm's financial ratios with other firms in the industry for a parti I less ar You decide also to conduct a qualitative analysis based on the factors summarized by According to your understanding, a company with one key product is considered to be more ican Association of Individual Investors (AAII). risky than companies with a wide range of products
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